At the end of its first year of operations, on December 31, 2021, CDW Partners? accounts show the following:

The capital balance represents each partner?s initial capital investment. No closing entries for profit (loss) or drawings have been recorded as yet.

Instructions

a. Journalize the entry to record the division of profi t for the year ended December 31, 2021, under each of the following independent assumptions:

1. Profit is $40,000. Duper? and Weir are given salary allowances of $8,000 and $12,000, respectively. The remainder is shared equally.

2. Profit is $40,000. Each partner is allowed interest of 5% on beginning capital balances. Chapman- Brown, Duper?, and Weir are given salary allowances of $15,000, $20,000, and $18,000, respectively. The remainder is shared in a ratio of 5:3:2.

b. Prepare a statement of partners? equity for the year under assumption 2 in part (a) above.

Taking It Further

Explain why partnerships such as CDW Partners include an interest allowance in their profit- and loss-sharing arrangements.

Transcribed Image Text:

Partner Drawings Capital J. Chapman-Brown $30,000 40,000 $10,100 C. Duperé H. Weir 7,000 50,000